Kemp: OPEC Risks Pyrrhic Victory With Oil Policy

Oil prices have fallen another $27, and show no signs of recovering, while many hedge funds are betting they will fall even further over the next few months.

Lower prices have cut economic growth in half and turned budget surpluses into big deficits even for the wealthy oil producers in the Gulf Cooperation Council.

For weaker members of OPEC in Latin America and Africa, as well as Iran and Iraq, the budgetary and economic impact has been far worse.

Saudi Strategy

OPEC's production strategy has been driven by Saudi Arabia, the cartel's biggest producer, and its veteran oil minister Ali Naimi, who has made clear the kingdom felt it had little choice.

Four years with prices averaging at or above $100 per barrel had left the market on an unsustainable course, with supply growth accelerating, especially from shale, while demand growth was slowing.

Oil prices had to fall substantially to curb growth in high-cost production from shale and other sources while encouraging faster growth in demand.

If Saudi Arabia had cut its output to prop up prices, it would simply have encouraged more growth in shale and demands for even deeper cutbacks later.


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WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Mike  |  December 01, 2015
I question the statement that most analysts do not see the market rebalancing before 2017 or even 2018. Nearly all the brokerage research Ive seen, as well as that from private outfits, show demand catching up with supply (i.e., the end of the inventory build) by late next year.


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